Opinion | Bloomberg Is Right About the 2008 Financial Crash

That brought an astonishing deterioration in the quality of housing assets. By 2007, high-risk mortgages made up 22 percent of the G.S.E.s’ portfolio, up tenfold from a decade before. The economists Atif Mian and Amir Sufi discovered that, between 2002 and 2005, income and mortgage credit growth were “negatively correlated.” The less likely you were to pay off a mortgage, the more likely you were to get one.

The G.S.E.s’ underwriting standards became those of the whole industry. By 2006, 46 percent of new homeowners were making no down payment at all on their houses, and banks had trillions of dollars in loans on their books that would never have been made, absent government pressure. No well-informed accountant thought these loans could survive an economic downturn, and they did not. The politicization of poor people’s mortgages in a single country — the promise to make loans to everyone, as Mr. Bloomberg put it — brought the world to the brink of economic disaster.

The macroeconomist Raghuram Rajan, who would go on to become governor of the Bank of India, had perhaps the most comprehensive explanation of how it all came about. He had warned central bankers before the crisis that many American financial innovations meant to minimize risk were in fact amplifying it. Mr. Rajan linked the financial crisis to the gradual rise of American inequality. Since 1992, the U.S. economy had recovered slowly from recessions. All its recoveries were “jobless recoveries”; after the 2001 recession, it took 38 months for the economy to return to full employment. And “the United States is singularly unprepared for jobless recoveries,” Mr. Rajan warned. It had no big transfer programs. Under such circumstances, any recession with the slightest perceptible effect on the public would end political careers by the score.

The result was reckless government extension of credit under both Democratic and Republican leadership. As a remedy for downturns, expanding credit has two practical advantages over government spending. First, it does not bother fiscal conservatives as much. Second, as Mr. Rajan put it: “Easy credit has large, positive, immediate, and widely distributed benefits, whereas the costs all lie in the future. It has a payoff structure that is precisely the one desired by politicians, which is why so many countries have succumbed to its lure.”

Mr. Bloomberg is saying something similar. He did not defend redlining. But that does not mean the idealistic fight against redlining is blameless in the financial shocks of 2008 and thereafter. It is what created the moral pressure — or provided politicians with the moral cover — to follow the destructive loose-credit policies that Mr. Rajan describes.

It is easy to call Bill Clinton a mountebank for raising Fannie Mae’s low-income quota to 50 percent or George W. Bush a fool for raising it to 56 percent. But is there any doubt that they would have faced the same accusations of racial insensitivity that Mr. Bloomberg is now facing had either of them sought to lower it?

Christopher Caldwell, a contributing opinion writer for The New York Times and a contributing editor at The Claremont Review of Books, is the author of “The Age of Entitlement: America Since the Sixties,” from which this article is adapted.

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